Why Reinvesting Dividends Matters: The Power of Total Return
When most investors think about returns, they think about share price. Did the ETF go up? Did it go down?
But over the long term, a significant portion of investment growth often comes from dividends. The real magic happens when those dividends are reinvested rather than spent.
The difference between price return (what the market price does) and total return (price plus reinvested dividends) is often much larger than people expect. Below are three real South African ETFs where this gap is particularly striking.
The Gap at a Glance
The table below shows what R100,000 invested from the earliest available date would have grown to as of July 2026, with and without reinvesting dividends.
| ETF | Reinvested (TRI) | Spent Dividends | Gap |
|---|---|---|---|
| STXGVI - SA Govt Bond ETF | R475,600 | R176,100 | +R299,500 |
| STXDIV - Dividend Strategy ETF | R207,700 | R118,000 | +R89,700 |
| ETFSAP - SA Property ETF | R153,800 | R74,800 | +R79,000 |
These figures use actual historical data and the official Total Return Index (TRI) calculation. The "spent" column shows what you would have if you spent every distribution and only held the asset at market value.
STXGVI: SA Government Bond ETF
Bonds pay regular interest. Over the long run, that interest makes up most of the return. An investor who spent every bond distribution would have seen R100,000 grow to only R176,100. An investor who reinvested each distribution into more units of the ETF would hold R475,600 today.
The reinvested line pulls away steadily over time because each distribution buys more units, and those units generate their own distributions. The gap widens every year.
STXDIV: Dividend Strategy ETF
This ETF selects high-dividend stocks. The market price has barely moved (+18% over the full period), but the dividends have done the heavy lifting. Reinvesting turned R100,000 into R207,700. Spending the dividends left the investor with just R118,000.
Someone relying on STXDIV distributions for income would watch their portfolio stagnate while the reinvesting investor's holdings compound year after year.
ETFSAP: SA Property ETF
This is the most dramatic example. The property sector has struggled, and the market price is actually lower today than at the start. An investor who spent their distributions would have lost money: R100,000 turned into R74,800.
But an investor who reinvested every distribution? R153,800. The property distributions, reinvested through the downturn, bought more units at lower prices. When the market recovered, those additional units multiplied the gains. Spending the income would have locked in the loss.
Accumulating Funds: Reinvesting Without the Effort
Some ETFs do the reinvesting for you. Accumulating funds retain dividends internally and issue no cash distribution. The fund's net asset value rises to reflect the reinvested income, so your holdings grow without you doing anything.
Two well-known examples on the JSE:
With these funds, there is no gap between price return and total return because the dividends never leave the fund. No manual reinvestment. No cash sitting idle. No decisions to make.
Less administration, less temptation to spend the income, and the full compounding effect working for you automatically.
For long-term investors in a TFSA, where every rand of contribution space is valuable, accumulating funds remove the friction that stops many investors from reinvesting.
The Berkshire Hathaway Lesson
In 1967, Berkshire Hathaway paid a 10-cent-per-share cash dividend. It was the only dividend the company has ever paid.
Warren Buffett has called it a mistake. His famous line:
I must have been in the bathroom when the board voted on it.
Buffett realised that every dollar retained and reinvested at high rates of return was worth far more to shareholders than distributing cash. Rather than paying dividends, Berkshire used retained earnings to acquire businesses, building one of the most valuable companies in the world.
The ability to retain 100% of earnings - zero dividend payments - was one of Berkshire's greatest advantages. A single share of Berkshire Hathaway purchased in 1967 for around $20 would have been worth over $700,000 as of July 2026.
The Danger of Spending Distributions
The three charts above share a common pattern: the gap between the reinvested line and the spent line grows over time. Early on the difference appears small, but two decades of compounding turns a small gap into a large one.
Someone relying on bond or dividend distributions for income is not just spending their returns. They are slowly selling off their future compounding power. Every rand spent today is a rand that would have been reinvested and grown.
This is especially dangerous for bond and property investors, where distributions make up the majority of long-term returns. Spending those distributions converts a growing asset into a stagnant one, and in the case of property, can turn a positive total return into a net loss.
The Bottom Line
Price return tells you what the market thinks the asset is worth at a specific moment.
Total return tells you what you actually earned if you held the asset over the long term.
At TFSA Labs, we use Total Return Index data wherever possible so you can compare strategies based on what really matters: the growth achieved after reinvesting every distribution.
Also read: How a 1% Fee Difference Can Cost You a Fortune - another reason costs matter as much as returns.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Historical performance does not guarantee future results. Investors should conduct their own research and consider their personal circumstances before making investment decisions.